Amidst the strength of the US dollar, gold futures fell below the $1,800 level, despite rising inflation and growing recession fears. Although the yellow metal has outperformed the stock markets, XAU/USD gold prices are still going through a rough two months due to the monetary tightening efforts. With weak economic data, can metal Commodities start rising again?

The price of XAU/USD gold moved towards the support level of $1785 for an ounce, the lowest in a month and a half, and settled around the level of $1810 an ounce at the beginning of this week’s trading. In general, the gold price recorded a weekly loss of 1.5%, in addition to its decline since the start of the year 2022 to date by about 2%. In the same way, prices of silver, the sister commodity to gold, fell below $ 20 for the first time since the early days of the Corona virus epidemic. Silver futures fell to $19.595 an ounce. Accordingly, the price of the white metal recorded another weekly decrease of 6.3%, which raises its decline since the beginning of the year 2022 to date by 16%.

In general, the metals market has struggled in recent weeks due to fears of a bloated recession. With the economic outlook dwindling, there are fears of a drop in demand for the metals. Meanwhile, with rates still rising at a 40-year high, more global central banks are likely to raise interest rates.

The US Treasury market was in decline. With the benchmark 10-year bond yield dropping 17 basis points to 2.804%. The gold market is usually sensitive to the price environment because it raises the opportunity cost of holding non-yielding bullion. Recession fears intensified on Friday, with major indexes of global stock markets falling. The only notable gains were among energy commodities, although they began to pare their significant gains due to demand concerns.

The Institute for Supply Management’s manufacturing Purchasing Managers’ Index (PMI) fell to 53, below market expectations of 54.9. Construction spending fell 0.1% in May, below the average estimate of 54.9, according to the Bureau of Economic Analysis (BEA). The Federal Reserve Bank of Atlanta now estimates second-quarter GDP at -1%. The strong dollar added to gold’s losses. Where the US Dollar Index (DXY), which measures the performance of the US dollar against a basket of major currencies, rose to 105.57, from an opening at 104.69. The index has risen by 10% since the beginning of the year 2022 to date. In general, the rise in the value of money is bad for commodities priced in dollars because it makes them more expensive to purchase for foreign investors.

For other metals markets, copper futures were at $3,5665 a pound. Platinum futures fell to $860.50 an ounce. Palladium futures rose to $1,934.00 an ounce.

XAU/USD Technical Analysis

In the near term and according to the performance on the hourly chart, it appears that the price of the yellow metal XAU/USD is trading within an ascending channel formation. This indicates a sudden change in market sentiment from bearish to bullish. Therefore, the bulls will look to extend their current rebound profits towards $1,814 or higher to $1,820 an ounce. On the other hand, the bears will target potential pullbacks around $1,804 or lower at $1,799 an ounce.

In the long term, and according to the performance on the daily time frame, it appears that the price of XAU/USD is trading within a descending triangle formation. This indicates a possible end to the current downtrend. Therefore, the bulls will target potential long-term bounces around $1,831 or higher at $1,858 an ounce. On the other hand, the bears will look to extend the decline towards $1,785 or lower to $1,756 an ounce.

For seven consecutive trading sessions, the price of gold has been sold off. It moved towards the support level of $1892, the lowest for the yellow metal in nearly a month, and settled around $1905. Gold is trying to avoid moving below the psychological level of $1900, as the selloffs do not increase. The recent sales were primarily due to the strength of the US dollar thanks to expectations of raising US interest rates strongly during the year 2022.

We still notice a divergence in the performance of global stock markets. US stock indices are pointing to lower openings when the New York daily session begins. Traders and investors are concerned early this week as China continues to shut down its major cities to prevent the spread of Covid. This leads many to believe that the Chinese economy, the second largest in the world, will suffer significantly this year, including more disruptions in the supply chain in Asia and around the world.

Coronavirus shutdowns are making China’s economy sway as cases spread Xi puts ideology ahead of the economy as the market crashes and the global supply chain crisis erupts again as everything from Beijing begins Covid testing for most cities as the specter of lockdown looms on and on The Central Bank of China is trying to calm the markets with more support.

The Russo-Ukrainian War has also increased risk aversion in the market over the past several weeks. For his part, a senior Russian government official said today that the United States and Russia risk a nuclear war.

In general, inflation concerns remain at the forefront of global markets.

On the other hand, and amid the continuation of the Russian-Ukrainian war: The second largest gold producer in Russia, Polymetal, prefers to sell its gold abroad since Russian local banks started buying the yellow metal at a discount. In light of Western sanctions imposed on Russia after its invasion of Ukraine in February, Polymetal’s options for selling its gold are limited. Bloomberg reports that the miner is targeting non-sanctioned banks, citing CEO Vitaly Nesis as saying during a call to investors on Monday.

However, those domestic banks buy the yellow metal at a discount compared to international rates. In the past, the local banks that Polymetal usually sold were state-run banks, including Sberbank PJS, VTB Bank PJSC and Bank Otkritie.

Because of the sanctions, the miner could no longer sell his gold to those institutions. And Bloomberg reported that the Russian Central Bank, which has restarted its official purchases of domestically produced gold, is not expected to buy as much as before. This is why the miner is looking to sell his gold internationally, despite the price discount described as small. “Our strategy is to sell as much as possible for export,” said Neeses. Polymetal is listed on the London Stock Exchange, the Moscow Stock Exchange, and the Astana International Exchange in Kazakhstan.

Sticking to the price of $1900 will continue to support the bulls to return to the upside. However, the gold futures bulls have lost their general slight technical advantage in the near term. Therefore, the next bullish price target for the bulls is to achieve a close in the futures contract above the strong resistance at $1950. The bears’ next bearish price target in the near term is pushing futures prices below the strong technical support level at $1,850. We notice the first resistance at the recent high at $1,910.40, then at $1,925. The first support is seen at the low of $1896 and then the low of this week at $1891.

Despite the recent performance, the continuation of the Russian-Ukrainian war and its repercussions on the future of the global economic recovery, along with a new outbreak and restrictions to contain Covid-19, will remain factors supporting bulls to launch higher at any time. I still prefer buying gold from every bearish level and the closest buying targets are currently $1880 and $1862.

Within narrow ranges, the price of gold is still moving since the start of trading this week between the support level of $1915 and the resistance level of $1945. It settled around the level of $1927 at the time of writing the analysis. Stability returns to the gold market, as investors balance between the future of tightening the Fed’s policy, which leads the general trend of global central banks in tightening, and between the continuation of global geopolitical tensions, which support the demand for buying gold as a safe haven. The US dollar stabilized and Treasury yields rose after Federal Reserve Governor Lael Brainard, who is awaiting Senate confirmation to serve as Vice Chairman of the Federal Reserve, described the task of reducing inflation pressures as “of paramount importance” and indicated a strong approach to shrinking the Fed’s balance sheet.

The United States said it would impose “significant and immediate economic costs on the Putin regime for its atrocities in Ukraine, including Bucha”. The sanctions include freezing the US assets of Putin’s daughters and cutting them off from the US financial system. Washington also said it would apply “total ban” sanctions against Sberbank and Alfa Bank, Russia’s largest public and private financial institutions.

For its part, the European Commission has already proposed new sanctions, including a ban on imports of Russian coal, raising concerns about a new challenge to global supplies.

Stocks fell and bond yields rose on Wall Street on Wednesday after details from the Federal Reserve’s meeting last month showed that the US central bank intends to be assertive in its efforts to combat inflation. Meeting minutes show that policymakers agreed to begin reducing the Fed’s stockpile of Treasuries and mortgage-backed securities by about $95 billion per month, starting in May. As a result, the S&P 500 fell 1%, and the Dow Jones Industrial Average fell 0.4%. Tech companies suffered some of the biggest losses, sending the Nasdaq down 2.2%. The yield on the 10-year Treasury rose to 2.61%.

The minutes of the meeting three weeks ago reveal that federal policymakers generally agreed to start reducing the US central bank’s stockpile of Treasury securities and mortgage-backed securities by about $95 billion per month, starting in May. This is more than some investors expected and almost double the pace the last time the Fed trimmed its balance sheet. At the meeting, the Fed raised its benchmark short-term interest rate by a quarter of a percentage point, its first increase in three years. The minutes showed that many Fed officials wanted to raise interest rates by a larger margin last month, and still see “one or more” of these huge increases likely to come at future meetings.

Overall, investors are focused heavily on Fed policy as the central bank moves to reverse low interest rates and the exceptional support it began providing the economy two years ago when the pandemic pushed the economy into recession. The Fed’s proposed timetable to allow billions of bonds and mortgage-backed securities off its balance sheet was hinted at Tuesday in comments by Fed Governor Lael Brainard, who said the process could begin as soon as May and continue at a rapid pace.

A rapid reduction in the Federal Reserve’s balance sheet will help raise long-term interest rates, but it also contributes to higher borrowing costs for consumers and businesses. Traders are now pricing in a roughly 77% probability that the Fed will raise its key interest rate by half a percentage point at its next meeting in May. That’s double the usual amount and something the Fed hasn’t done since 2000.

US inflation has reached its highest level in four decades and threatens to derail economic growth. Rising prices on everything from food to clothing have raised fears that consumers will eventually cut back on spending. Russia’s invasion of Ukraine added to those fears, sending energy and commodity prices, including wheat, higher.

US Treasury Secretary Janet Yellen warned a House of Representatives committee on Wednesday that the conflict would have “enormous economic ramifications in Ukraine and beyond.”

The conflict in Ukraine has continued to create financial pressures against Russia. The White House said Western governments would ban new investors in Russia after evidence that its soldiers deliberately killed civilians in Ukraine. The US Treasury said that the government of Russian President Vladimir Putin will be prevented from repaying dollar debts from US financial institutions, which could increase the risk of default. They have resisted calls to boycott Russian gas, Putin’s largest source of exports, due to the potential impact on their economies.

Despite the strength of the US dollar, the gold market still maintains the bullish trend, as I mentioned before, global geopolitical tensions and the return of anxiety over the Corona epidemic will remain supportive factors for the gold market. According to the performance on the daily chart, stability will remain around and above the resistance at $1900, supporting the bulls’ continuous control of the trend. The closest resistance levels are  $1945 and $1970, and the last level is crucial for the price to reach the historical psychological peak of $2000 again.

On the downside, I still see the psychological support of $1880.